The war in Iran could lead to higher interest rates and affect the cost of your mortgage. Find out why and whether you could be affected.

At the end of 2025, there was an expectation that the Bank of England (BoE) would make several cuts to the base interest rate in 2026 as the rate of inflation stabilised. This would have made the cost of borrowing, including through a mortgage, cheaper. However, experts now forecast that rates could rise instead.

Throughout March 2026, conflict in Iran has dominated the headlines, and while the events might seem far away, they can have financial consequences for you.

As the Middle East is a major exporter of oil, the war has led to the price of oil rising. This, in turn, could mean inflation starts to rise again in the UK.

Rising inflation could mean interest rates rise

One of the ways the BoE can manage inflation is by increasing interest rates.

So, rather than the anticipated cuts to interest rates, markets are bracing for them to rise. According to a report by the Independent (23 March 2026), some economists expect there to be as many as three interest rate rises in the coming months.

As of April 2026, the base rate stands at 3.75%. When the Bank has adjusted the base rate over the last five years, it has done so in small increments of 0.25% or 0.5%.

The Bank’s base rate affects the interest rate offered by lenders and might have a direct effect on your mortgage, as well as other forms of borrowing.

As you typically use a mortgage to borrow large sums, even a seemingly small increase in the interest rate you pay could affect your budget.

Imagine you’ve borrowed £250,000 through a repayment mortgage with a 25-year term. If your interest rate is 4.5%, your monthly repayment would be £1,389. This would rise to £1,535 if your interest rate increased by just 1%.

In addition, the total amount you would pay in interest over the full mortgage term, if the interest rate remained the same, is significantly higher. With an interest rate of 4.5%, you’d pay just over £166,700 in interest. This would increase by almost £44,000 to more than £210,500 if the interest rate were 5.5%.

It’s important to note that these predictions aren’t guaranteed. The BoE might opt to take a more cautious approach, or the situation could change as it’s developing quickly.

How will an interest rate rise affect my mortgage?

Whether an interest rate hike will affect you immediately will depend on the type of mortgage you have.

Fixed-rate mortgage deals

If you’ve taken out a fixed-rate mortgage deal, the interest rate you pay will remain the same until the deal ends. Consequently, your repayments will not change even if the BoE increases its base rate.

When your current deal ends, you may find the new deals you’re offered have a higher interest rate than you’re paying now. So, it’s important to be aware of this date and how your repayments might change in the future.

Tracker- and variable-rate mortgage deals

With both tracker- and variable-rate mortgage deals, the interest rate you pay can change during the term.

A tracker mortgage tracks the BoE’s base rate. If the Bank increases the base rate, the amount of interest you’ll pay will rise.

Similarly, a variable mortgage will follow your lender’s interest rate, which is often influenced by the BoE’s decisions. If the BoE hikes interest rates, it’s likely your repayments will increase within a few months.

We can answer your mortgage questions

Whether you’re looking for a new mortgage deal or you have questions about your existing one, we’re here to help.

Please note:

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.